CBK predicts small banks will merge into stronger lenders

NAIROBI: The Central Bank of Kenya (CBK) has projected that small lenders will merge this year to form more resilient institutions.

CBK Governor Patrick Njoroge said he expects “natural consolidation” would happen, but pointed out it would be terrible to force lenders merge.

“This is a great time to be in the banking sector, that we could have strong banks that can sustain whatever shocks,” he said, a day after the collapse of Chase Bank.

Other options he mentioned that are open to small lenders include the entry of strategic investors who have specific knowledge that would help the banks “ride the tide”.

CBK in effect has a moratorium barring the entry of new players into the banking sector, a measure it cited was necessary to enhance its own supervisory capacity.

Barring new entrants technically forces prospective entrants to acquire stakes in existing players.

Chase Bank may be the first beneficiary of that directive, with talks that its European strategic investors were keen on injecting new cash to bail the bank out of receivership.

The exact additional capital requirement has not been made public yet, but insiders at the bank say CBK has demanded a “very big amount”, slowing the process of reaching a resolution.

IDEAL NUMBER

But Dr Njoroge was clear that it was not CBK’s intent to reduce the number of banks operating in Kenya, as there was no ideal number, adding that even small banks could still be strong.

“The idea is that banks will strengthen their business models and become more stable,” he said.

He was speaking at the same event where National Treasury Cabinet Secretary Henry Rotich disclosed that the four Government-owned banks would be merged to “one or two”, to eliminate the current situation where the already small lenders are competing among themselves for customers and business.

“This is an option we have to consolidate them and have one or two strong banks, rather than the four competing,” he said.

The Government owns Consolidated Bank, Postbank, Development Bank and a significant stake in National Bank of Kenya.